Extended warranty offers can be costly to your business

In today’s retail environment, businesses regularly offer customers extended warranties for an additional price. When offering an extended warranty, it is crucial for the business to ensure that any offer for an extended warranty complies with the customer protections set out in the Australian Consumer Law (ACL).

The Federal Court has recently found that both Fisher & Paykel and Domestic & General Services breached the ACL by making false or misleading representations while offering extended warranties to customers. As a consequence, both businesses have been fined $200,000.

The contravening conduct by these businesses involved sending letters to customers that stated:

Your Fisher & Paykel [appliance] is now a year old, which means that you have 12 months remaining – after that your appliance won’t be protected against repair costs.

This statement clearly told customers that they would not be entitled to protection against repair costs after the initial 2 year warranty period, the implication being that they should purchase an extended warranty. This statement is an untrue statement given the operation of the ACL.

Businesses must not represent to customers that they need an extended warranty in order to be protected against defects after a specific period of time when, in reality, the customer may have extended protection under the ACL which would require the business to repair or replace a faulty product at no cost to the customer.

Such extended protection applies by virtue of certain consumer guarantees provided for in the ACL. Those guarantees include that a product must, among other things:

be safe, lasting and with no faults;

look acceptable; and

do all of the things that someone would normally expect that product to do.

The period of protection under the ACL will depend on the product itself. For example, it is probably reasonable to expect an expensive washing machine to function properly for more than 2 years, thereby ensuring protection under the ACL for a significant period after any retailer/manufacturer’s warranty expires. By comparison the reasonable lifespan of a less expensive item, such as a $30 electrical appliance, might be a significantly lesser period meaning a lesser period of ACL protection.

The decision in Fisher & Paykel and Domestic & General Services is indicative of the ACCC’s current priority of enforcing the consumer guarantee regime under the ACL. Businesses must exercise caution in this area to ensure that they are not subject to the wrath of the ACCC. This kind of breach of the ACL could see the business face significant fines similar to the penalties imposed on Fisher & Paykel and Domestic & General Services.

However, this decision does not mean that businesses cannot offer extended warranties. Often, it is the wording used in the offer to purchase the extended warranty that causes the breach. If you are considering offering an extended warranty and would like us to review the wording to ensure your business is not breaching the ACL, please contact: